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Outdated Law Prevents NYC from Cashing In on Luxury Apartments

A New York state law on the books since the 1980s undervalues property tax rates on multimillion dollar residential buildings, providing astonishing discounts to New York City’s wealthiest homeowners.

Elizabeth Harris explores the effect of an obscure New York state law that ties the valuation of condominiums and co-ops for tax purposes to comparable rental buildings, rather than apartment sales. Of course, says Harris, "At the tippy top of the market, populated by $20 million, $30 million, $40 million, even $88 million apartments, real estate experts say that truly comparable rental buildings essentially do not exist."

"An apartment at the Plaza Hotel that sold for $48 million last year is valued by the city at $1.7 million. A condo at 80 Columbus Circle that sold for $30.55 million last summer is valued at $2 million. And the $88 million apartment is valued at $2.97 million, or just 3.4 percent. The impact on city revenue needs then ripples down."

"If a certain kind of property is systematically undervalued, another kind of property has to pick up the slack," said Andrew Hayashi, a property tax expert at the Furman Center for Real Estate and Urban Policy at New York University.

The state law was enacted in the 1980s, during a different real estate market, but when the subject of reforming the law is explored, "technical and political pressures tend to overwhelm the cause, which then is quietly put on a shelf."